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-Refer to Table 10-4. Assume that all other banks hold only the required 4 percent of deposits as reserves, and that people hold only deposits and no currency. If the Bank of the Kawarthas decides to hold reserves of 4 percent, by how much would the economy's money supply increase? A) $30,000 B) $35,000 C) $42,000 D) $45,000 -Refer to Table 10-4. Assume that all other banks hold only the required 4 percent of deposits as reserves, and that people hold only deposits and no currency. If the Bank of the Kawarthas decides to hold reserves of 4 percent, by how much would the economy's money supply increase?


A) $30,000
B) $35,000
C) $42,000
D) $45,000

E) B) and C)
F) None of the above

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Suppose a bank has a 10 percent reserve ratio, $2000 in deposits, and it loans out all it can, given the reserve ratio. Which of the following describes the bank's assets?


A) It has $20 in reserves and $1800 in loans.
B) It has $20 in reserves and $1980 in loans.
C) It has $200 in reserves and $1800 in loans.
D) It has $200 in reserves and $2000 in loans.

E) All of the above
F) A) and B)

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The Bank of Canada was created in 1934 in the wake of the Great Depression.

A) True
B) False

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M1+ includes savings deposits.

A) True
B) False

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Which agency is responsible for regulating the money supply in Canada?


A) Finance Canada
B) the Bank of Canada
C) the Royal Bank of Canada
D) the Canadian Payments Association

E) B) and C)
F) A) and D)

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Which list contains only actions that increase the money supply?


A) making open-market purchases; raising the reserve requirement ratio
B) making open-market purchases; lowering the reserve requirement ratio
C) making open-market sales; raising the reserve requirement ratio
D) making open-market sales; lowering the reserve requirement ratio

E) None of the above
F) C) and D)

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-Refer to Table 10-4. Assume that all banks hold the same reserve ratio as the Bank of the Kawarthas. What is the money multiplier? A) 3.5 B) 17.5 C) 19 D) 20 -Refer to Table 10-4. Assume that all banks hold the same reserve ratio as the Bank of the Kawarthas. What is the money multiplier?


A) 3.5
B) 17.5
C) 19
D) 20

E) A) and C)
F) B) and D)

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What does the calculated amount of currency per person in Canada suggest?


A) People tend to hold too much currency.
B) Most payments are made in cash.
C) People do not trust banks.
D) There is a significant illegal activity.

E) A) and D)
F) A) and C)

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A bank has $200 reserves, $800 loans, $400 securities, $1200 deposits, and $100 debt. a) Calculate the bank's capital. b) Calculate the bank's leverage ratio. c) Suppose there is a stock market boom, so that the bank's assets increase by 2 percent. What is the percentage change in the bank's capital? What is the change in the bank's capital in dollars? d) Suppose that, instead of stock market boom, some borrowers default on their debt so that the bank's assets decrease by 2 percent. How much is now the bank's capital?

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a) Capital = Assets - Deposits - Debt = ...

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What is a credit card?


A) a form of money
B) a form of saving
C) a form of investing
D) a form of payment

E) C) and D)
F) B) and C)

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If currency is $50 billion, chequable deposits $700 billion, other minor, less liquid categories $300 billion, and credit card debt $500 billion, how much is M1+?


A) $750 billion
B) $1000 billion
C) $1050 billion
D) $1550 billion

E) C) and D)
F) A) and B)

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When a bank loans out $1000, what happens to the money supply in the long term?


A) It increases by $1000.
B) It decreases by $1000.
C) It increases by more than $1000.
D) It decreases by more than $1000.

E) A) and B)
F) A) and C)

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-Refer to Table 10-2. If the reserve requirement is 12 percent, what is the state of this bank? A) It can make a new loan of $17,500. B) It has less reserves than required. C) It has excess reserves of less than $5000. D) It has excess reserves of more than $5000. -Refer to Table 10-2. If the reserve requirement is 12 percent, what is the state of this bank?


A) It can make a new loan of $17,500.
B) It has less reserves than required.
C) It has excess reserves of less than $5000.
D) It has excess reserves of more than $5000.

E) C) and D)
F) None of the above

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In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

A) True
B) False

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-Refer to Table 10-4. If the Bank of Canada requires a reserve ratio of 4 percent, how much in excess reserves does the Bank of the Kawarthas now hold? A) $600 B) $700 C) $1440 D) $1500 -Refer to Table 10-4. If the Bank of Canada requires a reserve ratio of 4 percent, how much in excess reserves does the Bank of the Kawarthas now hold?


A) $600
B) $700
C) $1440
D) $1500

E) A) and B)
F) None of the above

Correct Answer

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Who determines the amount of money in the economy?


A) The Bank of Canada controls the money supply precisely.
B) The amount of money in the economy does not depend on the behaviour of depositors.
C) The amount of money in the economy depends in part on the behaviour of banks.
D) The Minister of Finance determines the amount of money in the economy by law.

E) A) and D)
F) B) and C)

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Describe the two things that limit the precision of the Bank of Canada's control of the money supply and explain how each limits that control.

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First, the Bank of Canada does not contr...

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A bank has (in millions) : $300 reserves, $700 loans, $500 securities, $1200 deposits, $100 debt, and $300 capital. How much is the bank's leverage ratio?


A) 0.2
B) 0.25
C) 5
D) 30

E) A) and D)
F) A) and B)

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What is the reason behind the seven-year appointment for the governor of Bank of Canada?


A) It makes the system compatible with the ones in other countries.
B) It confers stability to the financial system.
C) It allows the governor time to implement changes and to analyze the results of those changes.
D) It insulates the governor from political pressure.

E) All of the above
F) A) and C)

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How could the Bank of Canada increase the money supply?


A) by selling government bonds
B) by decreasing the bank rate
C) by increasing the reserve requirement
D) by increasing the bank rate

E) A) and B)
F) A) and C)

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